Redomestication vs. Statutory Conversion [moving a company to a new state]
From #LegalBytes: The Official Podcast of Cummings & Cummings Law · 14:51
Show by Cummings & Cummings Law
Attorney and CPA Chad D. Cummings notes that redomestication and statutory conversion are related concepts, but they are not synonymous. Redomestication is the broader objective: moving the legal domicile of an existing LLC or corporation from one state to another while preserving continuity. Statutory conversion is one legal mechanism that can be used to accomplish that objective. When available and appropriate, a statutory conversion allows the existing company to continue in the destination state rather than dissolving it and forming a replacement. The same business continues, including the same federal employer identification number, business history, contracts, credit relationships, and other attributes. People often search their former state’s statutes, fail to find a provision expressly authorizing an outbound statutory conversion, and conclude that the company cannot be redomesticated. That conclusion is wrong. All 50 states permit businesses to accomplish an interstate change of domicile, but the terminology and methodology vary substantially across state lines. Direct statutory conversion is one method. It is not the definition of redomestication, and the absence of a direct statutory-conversion procedure does not necessarily prevent the company from changing its domicile. Where direct statutory conversion is unavailable, experienced counsel may be able to use another legally recognized method, including a hybrid merger or another transaction designed around the laws of the two jurisdictions. The appropriate mechanism depends upon the company’s existing state, destination state, entity type, governing documents, tax classification, and other circumstances. Different states use conversion, domestication, continuation, merger, and similar terminology differently. Selecting the wrong procedure can leave the company registered in the wrong state, terminate an entity that was supposed to continue, create unnecessary transfers of assets, or introduce federal and state tax problems. An accepted filing does not necessarily establish that the entire legal and tax transaction was structured correctly. Florida and Texas impose no personal income tax. Redomestication can move an existing company without dissolving it. Statutory conversion is one way to redomesticate a business. Redomestication is the broader process. If statutory conversion is not available, that does not necessarily mean the move is impossible. Determining that “my state does not allow conversion” should be the beginning of the legal analysis, not the end of it. Learn about the differences between redomestication vs. statutory conversion: https://www.cummings.law/redomestication-vs-statutory-conversion/
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